By Ravi Shankar

Summer Intern, VGSOM, IIT Kharagpur

Under Guidance of

Mr. Gaurav DesaiSr. ManagerFuture Supply Chain Solutions Limited

Evolution of Public Distribution System in India

Present Scenario of public distribution system – A detailed study

Evaluation of Public Distribution System

Suggestions / Possible solutions

Areas yet to be covered

Understanding Public Distribution System

Rationing was first introduced in Bombay in 1939 by British Govt. so as to ensure equitable food grain to urban consumer in face of rice prices.

The concept (PDS) was brought up in the year 1942 during second world war due to shortage of food grains.

Basic objective was price stabilization.

Food grain policy committee (1943) introduced rationing system exclusively for urban consumers.

Till late 1960s, govt. focus was on cheap procurement of food.◦ Imposition of levies, regulation on interstate movement (surplus to deficit),

restriction on exports etc.

FCI was established in 1965 as an autonomous body working on purchase, storage, transportation, distribution and sale of food grains.

In 1970s, focus shifted to support to farm-gate prices, stabilization and subsidy for lower income group.

After undergoing several changes under five year plans, PDS role became crucial when the entire population of country was brought under it in the seventh five year plan.◦ In 1984, GoI created department of food and department of civil supplies,

later being in-charge of PDS headed by minister of food and civil supplies.

By 1984, there were 3.2 lakh fair price shops all over India. Wheat, rice, sugar, kerosene, edible oil and soft coke were supplied as essential commodities.

Distribution of these commodities was made possible by multi faceted coordination of different government agencies such as FCI for food grains, FCI / Civil Supplies corporation for sugar, edible oil by State trading corporation and soft coke by Coal India Limited.

However, studies show that major weakness is in operational inadequacy in irregular supply to FPS and poor quality leading to non drawl.

PDS, till 1992, was a general entitlement scheme for all consumers without any specific targets.

Essential supply programme gave way to Revamped public distribution system (RPDS) in1992, under which 1775 blocks were identified as economically and socially backward.

It was launched so as to improve reach of PDS to far- flung, hilly, remote and inaccessible areas where substantial section of poor live.

The scheme involved development of infrastructure such as additional fair price shops & storage capacity and facility of door delivery for FPS.

Despite several efforts, PDS was widely criticized for its failure to serve population BPL, its urban bias, negligible coverage in states with highest concentration of poor people, lack of transport and accountable arrangements for delivery.

Realizing this, government of India introduced “Targeted Public Distribution System in India” in the year 1997.

The scheme was introduced so as to identify population under below poverty line, distribute food grains to them at special subsidized prices.

Under TPDS, each poor family was initially entitled to 10 kg of food grain which later on increased to 25 kg and is now 35 kg, at special subsidized prices.

From 1997 onwards, TPDS distributes grains on the basis of two criteria, 1. Below poverty line and 2. Above poverty line.

Additionally, Food grains and kerosene are distributed to consumers which are targeted under various schemes such as: Antyodaya Ann Yojna, Mid day meal scheme, wheat based nutrition programme, Annapurna Scheme, Sampurna gramina rojgar yojna etc.

Today, TPDS covers more than 8 crores of poor families across India for distribution of food grains and kerosene.

However, its effectiveness as well efficiency in identification & targeting the poor and distribution of entitled quantities of food grains, are still under question.

Since 1997, TPDS has been serving socio-economically backward people of the country with food grains and kerosene at subsidized prices.

PDS is operated under joint responsibility of central and state government. Central government through FCI, has assumed the responsibility of procurement, storage and bulk allocation of food grains to states govt.

Operational responsibility such as allocation within state, identification of poor under below poverty line and supervision of fair price shops rests with the state government.

Some states distribute additional items such as cloth, exercise books, pulses, salts, baby food, tea etc.

Procurement Food grains are procured at minimum support price (MSP),

by the govt.

Decentralized procurement scheme.

Central government meet the entire expenditure incurred in the process by the state government as per the approved costing.

Total procurement of rice including paddy during kharif marketing season (KMS) in 2008-09 was 336.85 lakh tonnes. Andhra Pradesh, Chattisgarh, Orissa, Punjab and Uttar Pradesh together contribute about 80% to this.

A total of 226.89 lakh tonnes of wheat was procured in the rabi marketing season (RMS) during 2008-09. Haryana, M.P., Punjab and U.P. together contribute about 90% to this.

Figures show that more than 80% of total wheat and rice procurement is done by state agencies (SWC, CSC, STC etc.).

The average buffer stock of food grains with FCI was 10.66 mT in 2006-07 and utilization of storage capacity was only 54% as on March 2007.

The carrying cost of buffer stock per quintal was Rs. 407 /-, the procurement cost for wheat and rice ranges between Rs. 180 – 200 /- and the distribution cost is about Rs. 280 /- per quintal of food grain.

The stock of rice and wheat in the Central Pool was sufficient to meet the requirement under Targeted Public Distribution System (TPDS) and Welfare Schemes during 2009-10 at existing level of allocations.

Distribution Food grains as per allocation to state government are further

distributed to district and block level. From there food grains are delivered to fair price shops as per their demands.

There are around 5 lakhs FPSs across India. Food grains are either door delivered to or are procured by, FPS and are finally sold to targeted end consumers at subsidized prices as per entitlements.

For people under APL, common grade rice is sold at a central issue price of Rs. 790 /- per quintal whereas grade A rice is sold at Rs. 895 /- per quintal and wheat is sold at Rs. 610 /- per quintal.

For people under BPL category, both common grade and grade A rice is sold at a central issue price of Rs. 565 /- per quintal and wheat is sold at Rs. 415 /- per quintal.

In addition to distribution of food grain to population under BPL and APL, allocation is made to population identified under various schemes such as:

◦ Antyodaya Ann Yojna◦ Mid day meal scheme◦ Annapurna Scheme◦ Wheat based nutrition programme◦ Food grains to adolescent girls and lactating mothers nutrition

programme◦ SC/ST/OBC Hostels& welfare institutions◦ Sampurna gramin ann yojna◦ National food for work programme◦ Village grain bank scheme◦ Emergency feeding programme◦ World food programme◦ Defense and◦ Paramilitary forces.

Source- Annual Report 2009-10, MoCAF&PD

Infrastructure for PDS

FCI has a total storage capacity of 252 lakh tonnes which include hired capacity from CWC, SWC, State govt. and private parties also.

Capacity utilization of FCI godowns is poorer than others which indicates under-utilization of infrastructure.

Allocation versus Off-take

The allocation of food grains to different states is done on the basis of average consumption of population respective state in the past few years.

The off-take of food grains has always been lower than the corresponding allocation for most of the states in the country. (Refer figures in fore-coming slides)

Issues that reflect performance of public distribution system

Quality of BPL identification survey

Circulation of BPL, APL ration cards vis a vis estimation

Efficacy in delivery mechanism in improving access of poor to PDS.

Off-take by poor and its determinants

Viability of fair prices shops & its implications

Extent of leakages and diversion of food grains

Quality of BPL Identification Survey

The responsibility of identification of BPL population lies under the purview of state government.

Matter of Subject: Administrative people (Gram Panchayat) take up the identification of BPL families as per general guidelines of govt. However, choice of family is subject to their own discretion.

There exist large errors of exclusion (those who are actually poor but not issued ration cards) and errors of inclusion (those who are not poor but are issued ration cards).

Table on the next slide shows state-wise figures of errors of exclusion and errors of inclusion.

It may be noticed that except a few states, majority have high errors of exclusion and errors of inclusion.

Andhra Pradesh, Kerala & Himachal Pradesh have very low errors of exclusion but high errors of inclusion whereas Madhya Pradesh, Punjab and Rajasthan are low in both types of errors.

It can be said that BPL families have been targeted better in south India as compared to rest of India.

It has been observed that some states have issued more BPL cards than the number of households while others have problems of identification.

Delivery Mechanism

The administrative structures built up by states for delivery of food grains are similar.

Most large states have 3-4 tier structure while northeastern states have 2 tier structure.

Food grains are allotted to states are further sub allocated to district for offtake.

The actual lifting of food grains from FCI godowns is done by wholesale dealers of food grains who operate at district or sub-district level.

Food grains from FCI godowns are transported to wholesaler’s godowns and from there to designated retail outlet.

FCI GodownFCI Godown Distribution Points

Distribution Points

Transportation by SCSC own/hired vehicles

FPSFPS

Transportation to /by FPS using hired vehicles

Delivery Mechanism Across StatesState Administrative

SetupStructure Dealer for lifting

FG from FCI godowns

Delivery to FPS by

Transportation charges

Andhra Pradesh 3 Tier (e - governed)

FCI - CSC - MLS Points - FPS

APCSC - own vehicles

FPS - hired vehicles

Borne by govt, unloading charges -FPS

Assam, Arunachal, Meghalaya

2 Tier - No CSC FCI - Wholesale depots - FPS

LAMPS Arunachal - door delivery, Assam & Meghalya - No door delivery

Bihar 2 Tier - BSFC FCI - SFC godowns - FPS

SFC - hired private vehicles

FPS FPS

Gujarat 3 Tier FCI - Distt depots - Taluka - FPS

GSCSC FPS FPS

Delivery Mechanism Across StatesState Administrative

SetupStructure Dealer for lifting

FG from FCI godowns

Delivery to FPS by

Transportation charges

Punjab 4 Tier FCI - CSC - Distt - Block - Sub centre - FPS

PSCSC till subcenter level

FPS FPS

Kerosene is delivered to FPS by wholesale dealers at different prices at different places as transportation charges vary.

Haryana 2 Tier FCI - Distt depots - FPS

DoFS - till distt depots

FPS FPS

Himachal Pradesh

3 Tier FCI - Distt - Wholesale godowns - FPS

CSC till wholesale godowns

FPS borne by govt

Kerosene is delivered to FPS by wholesale dealers. Transportation charges borne by FPS, passed on to end consumers

Karnataka 3 Tier FCI - Distt - Block - FPS

wholesale dealers

door delivery to rural FPS only

Govt - rural FPS and reimbursed to urban FPS

Delivery Mechanism Across StatesState Administrative

SetupStructure Dealer for lifting

FG from FCI godowns

Delivery to FPS by

Transportation charges

Kerala 3 Tier FCI - Distt - Block - FPS

wholesale dealers, 80% private

FPS FPS

Maharashtra 4 Tier - No CSC FCI - Divisional - Distt - Tehsil - FPS

private contractors door delivery Either Govt / Reimbursed

Orissa 3 Tier FCI - Distt - Block - FPS

DoF&CW FPS FPS

Rajasthan 3 Tier FCI -Distt - Tehsil - FPS

wholesale dealers wholesale dealers

Govt.

Uttar Pradesh 3 Tier FCI - Distt - FPS PDS Agency Tamil Nadu FCI - TNCSC - lead

society - link society (banks) - FPS

Unique because - 1. FPSs are run only by co-op and govt sector, 2. cash credit facility to lead society (FPS), OPTION CARD SYSTEM

West Bengal 3 Tier FCI - CSC godowns- Distribution points - FPS

wholesale dearers wholesale dealers

Reimbursed by govt

Rice for BPL beneficiaries procured by state only. Certain other commodities are also made available.

Financial Viability of FPSs

It may be seen that in all north eastern states and Bihar & U.P. , most of FPSs are owned by private individuals.

Whereas in Haryana, Himachal, Madhya Pradesh, Tamil Nadu, majority of FPSs are owned by government and cooperatives.

Margin for FPSs with door delivery varies from 8-45 paise per kg of rice and 7-30 paise per kg of wheat.

Those without door delivery varies from 10-140 paise per kg of rice and 10- 30 paise per kg of wheat.

Transportation, loading and unloading together constitute more than 20% of total operating cost of FPS.

It has been found that subsidizing these costs will turn FPSs financially viable.

About 23% of FPSs are financially viable ( i.e. earning more than 12% return on working capital).

Off-take Determinants

Difference in market price and PDS price: On an average market prices were 150% of PDS price.

Presence of foreign particles in food grains : 48% of BPL cardholders across country reported presence of substantial amount of foreign particles.

No. of food grains installments offered: 75% of BPL cardholders preferred to lift PDS grains in installments.

Preference for PDS grains vis. a vis. local grains: About 75% of BPL cardholders said PDS gains are different from local variety while more than 70% of BPL cardholders reported strong preference of local variety of food grains.

Wealth status of cardholders: 36.5% of BPL cardholders possessed any one or more assets (viz. tractor, traveller, fridge, washing machine etc.)

Household sizes of cardholders: The average size of BPL cardholders family across states varies from 4-6 members. Overall average was found to be 5.

Diversion & Leakage of PDS Food Grains

Total leakage - > 36%, leakage through ghost cards – 17% & leakage at FPS – 19%.

Diversion to APL – about 22%. ( AP, Karnataka and TN contributed 70% of this).

Bihar and Punjab rank topmost with more than 75% PDS food grains leaking out.

A.P., Kerala, Tamil Nadu, Orissa and W.B. are state with least quantity of food grains leaking out.

It may be said that for making one kg of food grain available to poor government release 2.4 kg of food grains.

It has been noticed that subsidy is high in state where off-take is low and leakage of food grains is high, vice versa is also true.

This implies excess expenditure of government, diversion of food grain in open market, loss of welfare and defeat of the very purpose of government.

States Running PDS Better

Andhra Pradesh Tamil Nadu are two states who have taken initiatives to make PDS e-governed.

Andhra Pradesh now has electronic based solution to TPDS wherein movement of food grains from FCI godowns till FPS, sale of food grains at FPSs (through bar-coded ration cards) and payment to dealers at different levels are monitored online.

The information on lifting, receipt and issue of food grains at different levels is transferred to concerned people and to central hub using hand-held device using SMS.

Tamil Nadu and Karnataka also have vehicle tracking system wherein the details such as vehicle details, quantity, destination, date of delivery etc. can be tracked online.

Though Himachal Pradesh is not having any electronic PDS monitoring system, the leakage, diversion and targeting errors are among the lowest across the country.

Excess and incorrect identification of BPL and APL households.

Non issue of ration cards.

Multiplicity of schemes.

Multiplicity of prices – adds complexity, propensity to diversion.

Expensive operation.

Diversion of food grains.

Leakages.

Non availability of food grains at FPSs.

Poor quality of food grains.

Irregular opening of FPSs.

Lack of training of FPS dealers.

Lack of information.

Implementation of Nine point Action Plan – Review of BPL, AAY, leakage free distribution, involvement of PRIs, door delivery to FPS, Transparency etc.

Concurrent Evaluation of TPDS

Adoption of Revised citizen’s charter.

New technologies for tracking of vehicles

Display of Identities on vehicles

Monthly certifications by vigilance committees / Panchayats.

Allotment of FPS to institutions and Groups.

Computerization of TPDS. (AP, Assam, Delhi, Chhattisgarh)

Introduction of Bar coded coupons with ration cards.

Smart card based TPDS (Haryana & Chandigarh).

State government can create high quality beneficiary database using census 2010 data.

Enrollment of families into UID.

UIDAI (Unique identity authority of India) issue UID based on digitized database.

This UID of each family member will be printed on ration card.

Point of sale system, where system has to positively identify beneficiary before an issue is made.

PoS can generate receipt and automate book-keeping.

The data on eligible beneficiaries may be transferred to PoS and offtake data of previous month may be collected.

Efficient way of communicating entitlements to the beneficiary.

Choice of FPS.

Information, communication technology infrastructure

to connect all the key offices of the Food Department including the Secretariat, Commissioner cell, District Offices, Teshil/Block offices and Whole Sale Points.

ICT Infrastructure

Central MIS System

RC Mgmt System

Off-take analysis System

HHD in Field

PoS

Allotment System

Central Database

Grievance Redressal

Benefits to PDS from UID

Better identification leading to better targeting.

Use of database for authentication of beneficiary during off-take recording process.

PDS can use the technology support of UID program for enrollment process.

UIDAI will provide duplicate detection infrastructure to PDS.

UID will become an important identifier in banking services and day-to-day needs of residents. This can be used for direct cash transfer.

Identification of BPL families should be done with the help of reputed organizations such as NSSO, NCAER etc. Integrating it with UID project would save cost.

People who do not have secure source of income (e.g. daily wage earners) should be included under BPL.

There should be country wide computerization of database for effective monitoring and regular updating.

Beneficiaries should be issued:◦ Ration cards bearing UID – food grains distribution◦ Bank accounts - transfer of Cash

The process of procurement, storage and distribution of food grains under TPDS should be made electronically operated.

GPS / GPRS tracking of movement of food grains.

Information on stock levels of food grains at different levels should be made available online.

Mechanisms should be developed so as to understand the demand patterns to smoothen procurement and distribution.

Cost optimization of storage and transportation operations.

Food consumption pattern should be given due weightage while deciding composition of food grains .

Sale of food grains to beneficiaries via biometric system. (transaction done on acceptance by beneficiaries).

Ensure sufficient income at all levels in the system.

Training on duties and obligations to all the people in the system.

Easy to access complaint redressal system.

Cost as well as operational efficiency of transportation and storage of food grains under PDS.

Feasibility of integrating PDS with UID and implementation of e governed PDS

Study of PDS in some more countries.

PRIMARY FOOD GRAIN SUPPLIERS (Farmers)PRIMARY FOOD GRAIN SUPPLIERS (Farmers)

FCI/CWCFCI/CWC

Distribution to StatesDistribution to States

Procurement

Distribution

FPS

SWC, STC

Public Distribution System

PDS – A network of retail outlets through which government sells grains and kerosene at subsidized prices mainly to socio economically backward population.

Under PDS, government procures available quantities of food grains from farmers at minimum support prices, stores them for further distribution to various states as per their demands.◦ Procurement is not proportionate with the demands but is done in as much

quantity as available so that the demands may be met even during the years of low production.

Food Corporation of India (FCI) helps government in procurement, storage and distribution process.

FCI stores food grains, allocates quantities to states based either on consumption in the past or the population share of that state.

Food grains are distributed to fair price shops for final sale to the consumers at subsidized prices.